* German 10-year yields fall for fifth day

* Investors price one more ECB rate hike this year

* Reuters poll anticipates euro zone core inflation at 2.5%

in May

By Amanda Cooper

LONDON, June 17 (Reuters) - Euro zone government bond prices

rose for a fifth day on Tuesday, in their longest rally since

February, as cooling market expectations for inflation met

caution ahead of Kevin Warsh's first meeting as head of the

Federal Reserve.

The oil price has fallen to below $80 a barrel, a

drop of 10% since Monday after the United States and Iran

said they had reached an agreement on the framework for a peace

deal, to be signed in Geneva on Friday.

As a result, bond yields - which move inversely to price -

have tumbled and stocks have soared along with rate-sensitive

assets like gold.

Benchmark German 10-year yields fell 2 basis

points to 2.921%, as prices rose for the longest since

mid-February, prior to the start of the Iran war.

Yields are still nearly 30 bps higher than in late February,

but have retreated sharply from 15-year highs a month ago at

3.2%.

Two-year yields, which tend to react more to

shifts in expectations for inflation and rates, have retreated

more slowly. Two-year Schatz yields, which on

Wednesday were down 2.6 bps at 2.56%, are 55 bps higher than at

the start of the war.

ONE MORE ECB HIKE EXPECTED

Investors expect one more rate hike from the European

Central Bank this year, after last Thursday's quarter-point

increase. A week ago, a total of three hikes were priced in for

2026, which most market watchers believed would have been

excessive.

ECB chief economist Philip Lane said in an interview at the

Reuters NEXT Europe conference in London on Tuesday that the

central bank would remain "proactive" in its fight against high

inflation.

Deutsche Bank strategist Jim Reid noted the ECB's continued

concerns.

"So even with oil prices coming down again, markets are

still fully pricing in a second ECB hike before the end of the

year, following on from last week's move," he said.

May inflation data for the wider euro zone is due on

Wednesday. Economists polled by Reuters expect the core rate,

which excludes food, energy, alcohol and tobacco, to have

increased by 2.5% last month, matching the rise in April.

Italian 10-year yields were down 1 basis point

on the day at 2.74%, around their lowest in three months, which

kept their premium over German Bund yields just below 70 bps

.